Please use this form to submit your study for inclusion into our database. It will be checked by a member of the Innovation Growth Lab team, who may be in contact to ask for more information. Your email address * Your name * Title * The name of the study Short summary In the context of consumer lending in South Africa, advertising content has significant effects on demand, even relative to price effects. However, it was very difficult to predict the effects of different advertising content, and highlights the psychological premise that context matters. A brief description of the project's goals and its current state Abstract <p>Firms spend billions of dollars developing advertising content, yet there is little field evidence on how much or how it affects demand. We analyze a direct mail field experiment in South Africa implemented by a consumer lender that randomized advertising content, loan price, and loan offer deadlines simultaneously. We find that advertising content significantly affects demand. Although it was difficult to predict ex ante which specific advertising features would matter most in this context, the features that do matter have large effects. Showing fewer example loans, not suggesting a particular use for the loan, or including a photo of an attractive woman increases loan demand by about as much as a 25% reduction in the interest rate. The evidence also suggests that advertising content persuades by appealing “peripherally” to intuition rather than reason. Although the advertising content effects point to an important role for persuasion and related psychology, our deadline results do not support the psychological prediction that shorter deadlines may help overcome time-management problems; instead, demand strongly increases with longer deadlines.</p> The full abstract of the study, if available Links http://qje.oxfordjournals.org/content/125/1/263.full.pdf+html Links to any published papers and related discussions Authors * Affiliations Academic and other institutes that the authors of the study are members of Delivery partner Organisations involved in delivering the trial, if appropriate Year Year Year199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020202120222023202420252026 Month MonthJanFebMarAprMayJunJulAugSepOctNovDec Day Day12345678910111213141516171819202122232425262728293031 Journal Journal publishing the study, if available Publication stage * Working Paper Published Ongoing Research Forthcoming Discussion Paper Research theme * Entrepreneurship Innovation Business Growth Country Country or countries where this study took place. Topics What sort of topics does the study cover? Sample attributes Hypotheses / research question Advertising theory suggests that advertising content, including framing, cues, and product presentation, matters for purchasing decisions, and especially in relation to the consumers' context. Furthermore, deadlines and prices are expected to be important drivers of consumer choice. The effects of creative content, offer deadlines, and price on consumer choice, as well as the relative importance of each one, is critical to the design of marketing strategies. It is difficult to predict ex-ante which types of variations of creative content affect demand, but the premise of psychology - context matters - suggests that types and magnitudes of content effects require field experiments on a broad scale. In contrast to standard models that predict that consumers will always (weakly) prefer the longest available deadline, the authors' hypothesis aligns with some previous research that suggests that individuals often choose to impose shorter deadlines on themselves even when longer ones exist in the choice set. Standard models predict that consumer demand and price are inversely related, and that price sensitivity is related to the essentiality of the product. Sample Trial population and sample selection The sample frame consisted entirely of experienced clients of one of South Africa's most profitable consumer lenders which specialised in loans for the working poor. Each of the 53,194 solicited clients had borrowed from the Lender within 24 months of the mailing date, but not within the previous 6 months. Number of treatment groups Size of treatment groups Size of control group Unit of analysis Clustered? Yes No Cluster details Trial attributes Treatment description Certain basic content was common to all mailers. Treatment content on the mailers was varied across several dimensions with well-defined variations. The first dimension was creative content with varied by photo (5 variations), language affinity (2 variations), wording (2 variations), suggested uses (5 variations), number of example loans (3 variations), interest rate shown in example(s) (2 variations), comparison to outside rate (3 variations), and presence of a cell phone raffle (2 variations). The second dimension was the response deadline offered on the mailer (4 variations). The third dimension was price, i.e. the interest rate of the loan, conditional on the consumer's risk (3 variations). Clients revealed their demand with their take-up decision, i.e., by whether they applied for a loan before their deadline at their local branch. Each client's randomly assigned interest rate was hard-coded ex-ante into the computer system the Lender used to process applications. Each mailer contained some boilerplate content (e.g., the Lender's logo, its slogan, instruction to apply) and randomised variations on the eight different advertising content features. * System I treatment (intuitive processing): use of a photo, number of example loans, interest rate shown in example(s) * System II treatment (deliberative processing): suggested loan uses, comparison to outside rate, cell phone raffle * Lender imposed Treatments: client's language (no mention of language/"we speak [client's language]), "'special' or 'low' rate for you" * Other treatments: interest rate (high, medium, low), deadline (long, medium, short) Rounds of data collection Baseline data collection and method The cooperating consumer lender offered data on its past clients, including their credit history, credit risk, and demographics. Data collection method and data collected Evaluation Outcome variables <p>Impacts on Demand: Take-up decision, loan obtained or not, amount borrowed, loan amount maturity. Impacts on Outside Borrowing. Impacts on Repayment Behaviour (default or not).</p> Results <p>Interest rates: 4% increase in take-up for every 13% decrease in the interest rate, with a take-up price elasticity of -0.28; these results are nearly identical with respect to actually obtaining the loan as well. The total loan amount borrowed also responded negatively to price. Default rate rose with price. Substitution effects were not present - outside borrowing was not affected by the interest rate offered. Advertising content treatment: Advertising content had a significant effect on take-up. There is some evidence that these effects were economically large relative to price effects. Consumer response to advertising content does not seem to have been driven by substitution across lenders, and there is no evidence that it produced adverse selection. Female clients did not respond significantly to the content treatments, although these insignificant results are imprecise and do not rule out economically large effects of advertising content for women, as well. In this context, advertising content appears more effective when it is aimed at triggering an intuitive response rather than a deliberative response. Deadline: Deadline length trumped both advertising content and price in economic importance, and we found no systematic evidence of time management problems. Take-up and loan amount increased dramatically with deadline length. Lengthening the deadline by approximately two weeks (i.e., moving from the omitted short deadline to the extension option or medium deadline, or from medium to long deadline) increases take-up by about three percentage points. Shifting the deadline by two weeks had about the same effect as a 1,000 basis point reduction in the interest rate.</p> Intervention costs Not available. Cost benefit ratio Reference Bertrand, M., Karlan, D., Mullainathan, S., Shafir, E., & Zinman, J., 2010. 'What's Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment'. The Quarterly Journal of Economics, vol. 125 (1), pages 263-306. Citation for use in academic references
